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The last days of lehman brothers essay

Synopsis[ edit ] The Last Days of Lehman Brothers summarizes the events that occurred over the weekend preceding Monday, 15 September 2008, when Lehman declared bankruptcy. Some of the story is narrated by the fictional character "Zach", a Lehman employee often taking orders directly from Dick Fuld.

Zach often breaks the Fourth walltalking directly to the viewer.

  1. MF Global would have to post margin—in the form of cash or securities—with the London Clearing House LCH , where it would make almost all of these trades.
  2. Of course, the role of a chief risk officer is merely to identify risks.
  3. He likes to build things. And by any standard, it was a mess.

Investment bank Lehman Brothers is in trouble after a turbulent six months in which their real estate investments have lost billions of dollars, causing steep drops in Lehman's stock. Lehman's boss, Dick Fuld Corey Johnsonwho brought the firm through other crises, is himself growing desperate. Fuld's only remaining solution is to have Lehman acquired.

  1. Measured by market cap, Goldman Sachs was a hundred times its size.
  2. Indeed, the CEO is usually the final arbiter of what investments are too dangerous. Its profit would be the difference between the interest it paid for the loan and the higher rate it collected on the bonds.
  3. Goldfield held a singular notion of how to think about a financial crisis. With the gamble growing, Roseman now also worried about liquidity.
  4. Behind his bearded, professorial exterior lurks an intensely competitive overachiever.

Both Bank of America and Barclays are interested in purchasing the firm but are dissuaded because so much of Lehman's assets are "toxic", worthless. Lehman's problems have put the US government in a delicate position.

The lehman brothers bankruptcy essay

The collapse of a firm of Lehman's size would have catastrophic economic repercussions well beyond the firm itself. Because there is no political support for a government bailout of the firm, the government turns to Lehman's competitors for help.

American Treasury Secretary Hank Paulson warns the incredulous group that Lehman is not too big to fail and that there will be no bailout using public money.

The last days of lehman brothers essay

Instead, Paulson cajoles the bank heads to work out some joint plan among themselves to relieve Lehman of its toxic assets, warning them that the steep price they would pay to save Lehman would be easily outweighed by the cost of its failure.

He also intimidates the bank heads by reminding them that they too will soon need help. A solution must be found before trading opens in Japan on Monday morning. By Friday evening, Bank of America begins stalling the deal, noting that Lehman's valuation puts them "underwater" by billions of dollars. Fuld must now depend on Barclays, and he is clearly growing more desperate.

Retaining hopes that Bank of America will change its mind, Fuld secretly orders the firm's attorney Harvey R. Miller Richard Durden begin drafting a bankruptcy petition. Miller is incredulous, telling Fuld that a Lehman bankruptcy would be an unprecedented catastrophe, akin to the United States government going bankrupt. As Paulson's group searches for alternatives, Lehman's assets are subject to "valuation" by analysts from other firms. The analysts spend the night poring over boxes of paperwork.

Calculation is made extremely difficult because much of the assets are based on collateralized debt obligation CDO instruments whose value is difficult to assess, though it is clear that Lehman put a higher value on certain CDO's than other firms had. Overseeing the valuation, Zach mentions how the trafficking of subprime mortgages caused the economic crisis. The narration then shifts to Ezzy, Zach's sister back in Tennessee. Ezzy describes how she got her house by getting a mortgage from a broker who did not exhaustively check her financial papers, and used free software downloaded off the internet to the last days of lehman brothers essay her paychecks.

Her mortgage was then sent to New York where other bankers packaged her mortgage and, along with other mortgages, turning it into a security that could be bought and sold.

The last days of MF Global

Successive bankers repackage and grade the securities, and actively the last days of lehman brothers essay them at enormous profit, but devote little attention to whether the homeowners themselves can pay their mortgages. Eventually the financial world is forced to acknowledge that their CDO's are based largely on mortgages like Ezzy's, causing their value to collapse. Discussion continues at the Fed throughout Saturday with little result.

As they are no longer committed to Lehman, Bank of America is free to consider acquiring Merrill Lynch, which desperately needs the deal.

Since the prospect of acquisition makes it less likely that Merrill will need help from the Fed, Thain has little incentive to continue participating in Paulson's discussions. Paulson doesn't discourage Thain from leaving, seeing that an acquisition of Merrill Lynch could prevent another crisis that would also require some intervention by the Fed. As Thain leaves, he learns from Paulson of the Fed's plans to bail out AIGwhose credit default swaps insure half of the western world's banking system.

By Sunday morning, Fuld receives word that Barclays has agreed to acquire Lehman Brothers, saving it. Under British law, Barclays cannot guarantee Lehman's debts until its own shareholders vote on the matter, and that will not happen until Tuesday — beyond the Monday morning deadline. Paulson reiterates that the Fed will not "back-stop" Lehman, not even for the two days it will take for Barclays's shareholders to vote.

With no chance of a buyout, Lehman has no choice but to file for bankruptcy.

The last days of MF Global

Harvey Miller is summoned to the Fed to prepare the bankruptcy petition. Paulson is adamant, telling Miller that he had been trying for months to get Dick Fuld to have Lehman acquired, but that the price was never high enough. Lehman's CFO signs the petition just minutes before the midnight deadline. A devastated Fuld leaves his office as Lehman's now unemployed staff cleans out their desks. In a voice-over, Zach notes that the Fed did bailout firms that faced collapse after Lehman.